RBS 2012 Annual Report Download - page 79

RBS GROUP 2012
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2012 compared with 2011
Operating profit decreased by £161 million as a decline in income was
only partially mitigated by lower expenses and impairment losses.
Income was 17% lower:
x Loan portfolio decreased by 32%, mainly due to a strategic
reduction in assets, in order to allocate capital more efficiently, and
the effect of portfolio credit hedging and lower corporate appetite for
risk management activities.
x Cash management was broadly in line with the previous year.
Deposit margins declined following reductions in both three month
LIBOR and five year fixed rates across Europe; however, this was
offset by lower liquidity costs due to the strategic initiative to reduce
short-term bank deposits.
x Trade finance increased by 6% as a result of increased activity,
particularly in Asia.
x The restructuring in 2012 led to a reduction in activities undertaken
in the division, which contributed to a decline in income.
Expenses declined by £215 million, reflecting planned restructuring
initiatives following the formation of the International Banking division.
Savings were achieved through headcount reduction, run-off of
discontinued businesses and a resulting decrease in infrastructure
support costs. Revenue-linked expenses also fell in line with the
decrease in income.
Impairment losses decreased by £57 million with the non-repeat of a
single name impairment.
Third party assets declined by 24%, with targeted reductions in the
lending portfolio following a strategic reduction in assets.
Customer deposits increased by 2%. Successful efforts to rebuild
customer confidence following the Moody’s credit rating downgrade and
the Group technology incident in June 2012 outweighed economic
pressures. This, coupled with the managed reduction in loans and
advances to customers, improved the loan:deposit ratio to 85%.
Bank deposits were down 51%, mainly as a result of lower short-term
balances, reflecting a strategic initiative to reduce liquidity outflow risk.
Risk-weighted assets increased by 20%, reflecting the impact of
regulatory uplifts partially offset by successful mitigation through balance
sheet reduction. Risk-weighted asset intensity in the loan book has
increased significantly given the uplifts, which will result in strategic
adjustments going forward.
2011 compared with 2010
Operating profit was down 42%, partly reflecting the sale of Global
Merchant Services (GMS) which completed on 30 November 2010.
Adjusting for the disposal, operating profit decreased 32%, driven by a
decrease in income and an impairment provision on a single name in
2011.
Excluding GMS income of £451, income was 10% lower despite the
success of deposit-gathering initiatives, as customer deposits increased
£1 billion in a competitive environment.
Excluding GMS expenses of £244 million, expenses decreased by £4
million, reflecting business improvement initiatives and investment in
technology and support infrastructure.
Impairment losses increased to £168 million compared with £86 million in
2010 reflecting a single name impairment.